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Traders' Magazine
This article written by Nick Santiago was originally published in the august 2014 issue of Traders' Magazine.
- Nicholas Santiago started trading in 1991 and later became a licensed Series 7 and 63 registered representative. He successfully managed money for a large private client group. Nick is an expert in Technical Analysis, accomplished in the studies of Elliot Wave, Gann Theory, Dow Theory and Cycle Theory. Today, Nick is Chief Market Strategist at www.InTheMoneyStocks.com
How to Recognise Trading Chances
How often have you traded a specific chart pattern which has consistently made you money? Most successful traders who utilise technical analysis will search for the same type of chart patterns that worked before when looking for a trade. After all, chart patterns occur and repeat due to the psychology of the people who are trading from them. In other words, when a certain pattern forms on a chart, it is the human emotion of the traders being displayed and unfolded right in front of you.
There are many popular technical patterns on the charts that traders follow. Some well known and traditional patterns that many traders follow are called flags, consolidation patterns, head and shoulders, cup and handles, wedges, double tops, double bottoms, triangles, and more. Most technical traders will seek these type of patterns out everyday, in the hope of the pattern repeating and producing the results it is known for.
What’s Your Time Frame?
These same patterns can be found on all different charting time frames. When it comes to charting, the manner in which you are involved in the markets will determine which time frame you should use. For instance, if you are a day trader or scalp trader who is looking for quick gains during the same trading day, then the intraday chart will be the most beneficial to you. Some popular intra-day time frames include the 5-, 10-, 15-, 30- and 60-minute charts. Scalp traders can even be found utilising a 1-minute chart, while others may trade off of the extremely fast action of a tick chart.
Then there is the swing trader who is looking to buy or short a stock and hold the position for multiple days or weeks. The swing trader will predominantly trade off of the larger time from on the charts, such as the daily and weekly periods. Next, you have the position trader. This individual is looking to stay in a stock for weeks to months, with the intention of riding the position for a much larger move. Finally, you have the investors. Investors will generally look to hold stocks for years, but rarely do they use charts to do so.
Regardless of the type of trader you are, the same patterns can be found on all of the different time frames. With time frames and chart patterns in consideration, have you ever wondered why a particular chart setup which has worked before fails and costs you money? Most do not understand why chart patterns fail. They will usually say things like, the pattern just didn’t work out this time around, they will blame the news or some rare event for the failure of the pattern. Wouldn’t it be great to know if a pattern is going to fail before it happened? Well, there is one way to dramatically increase your odds of success.
Place the Odds in Your Favour
When a chart pattern appears, the successful trader and investor understands how to place the odds in their favour. Considering the odds of a trade, and keeping them in your favour is essentially the smart traders tool for seeing the future.
Very often during the trading session, many day traders will look at a 10-minute chart pattern, which to them, looks ripe for a great trade. However, while the chart looks good on the 10-minute chart, the trade may not have probability on its side. About 90 per cent of the time this is the case, indeed. On the other hand, when you can be correct anywhere near 90 per cent of the time, in trading and investing you will do very well.
With that said, the obvious question presents itself; how do you know when a chart pattern is going to work out or fail with a very high percentage rate of accuracy?
The information in TRADERS´ is intended for educational purposes only. It is not meant to recommend, promote or in any way imply the effectiveness of any trading system, strategy or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Trading and investing carry a high level of risk. Past performance does not guarantee future results.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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Top 10 Chart Patterns Every Trader Should Know
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What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.